Weighing The Week Ahead: What Will Q1 Earnings Reveal About Economic Strength?

The economic calendar is normal and includes some important reports. Despite this, the data will be overshadowed by Q1 earnings reports. With opinion sharply divided on future economic prospects, many will want to know how companies are doing and what their leaders think. They will be asking: What will Q1 earnings tell us about the strength and prospects for the economy?

Last Week Recap

In last week’s installment of WTWA, took note of the persistent discussion about the end of the economic cycle. Despite some of the typical crowding out from political stories, that topic got continued attention. On Friday, the story took a new turn as a touch of positive economic news from China was enough to tilt opinion. I agree with Eric Basmajian that we need to look beyond the PMI reports for real evidence. He cites export data from China’s trading partners as one useful approach. This is a good start but needs interpretation in the context of changing Chinese economic policy toward a consumer-driven economy. Contrast with the take from Pension Partners, reliant more on the recent PMI uptick. More solid indicators are needed.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Investing.com’s interactive chart. Check it out at the site to use the interactive features, including call outs for key news events.

The gain on the week, built on Friday’s trading, was 0.5%. The trading range was a modest 1.0%. As always, our indicator snapshot in the quant section below summarizes volatility and the VIX index in various time frames.

Noteworthy

Plastic bottles have surpassed plastic bags as the biggest threat to oceans and rivers, reports Melissa Locker in FastCompany. The Chinese shift away from accepting foreign waste has removed a cheap and easy alternative. Now it is time (and most of us would say well past time) to find recycling solutions.

I briefly looked for some pure play public companies making progress on plastic recycling, but the project was too big for my WTWA writing day. Perhaps readers will have ideas and include them in the comments.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

When relevant, I include expectations (E) and the prior reading (P).

New Deal Democrat’s high frequency indicators are an important part of our regular research. Long-term indicators have improved to positive, but the nowcast and short-term indicators are both negative. His conclusion?

I think too much emphasis is being put on a few short-term indicators by most observers. While interest rates have improved, we still have to get through last year’s weakness in the long leading indicators before the improvement filters through.

The Good

  • The NFIB Index rose to 101.8 up slightly from the prior month and beating expectations of 101.3. The attitudes of independent business people is especially important in the current environment. Jill Mislinski helps us see the strength, despite the decline from the peak.

The Daily Shot illustrates the biggest problem facing small businesses.

  • Core CPI increased only 0.1%, matching the February reading and lower than expectations of 0.2%. The market seemed untroubled by the headline number which increased 0.4%, more than expectations of 0.3%. Some observers think that inflation at 2% or above is “good” since it meets a Fed target. I prefer moderate, predictable inflation while using other measures to evaluate economic growth.Bespoke highlights the 2019 surge in gasoline prices with an interesting chart.

  • Initial jobless claims were only 196K, better than even the prior 204K and much better than expectations of 215K. Continuing jobless claims also look good, as reported by the Daily Shot.

  • Chinese exports for March rebounded strongly  (MarketWatch).
  • The JOLTS report showed continuing labor market strength and signs of a changed structure. As usual, most pundits just looked at job openings. This is a small part of the picture, and not the most important. The Washington Center for Equitable Growth provides the best summary of this report and this week needed only four charts and captions. Quit rates (showing confidence) remained high, hires constant despite fewer openings, and still fewer than one unemployed worker per opening. Finally, they show the Beveridge Curve, completing the overall story of a tightening market, but still showing some slack versus past occasions. Below is the official BLS version of that chart, including their interpretation.

The Bad

  • Core PPI increased 0.3% in March, worse than expectations of 0.2% and the February increase of 0.1%. For my interpretation, see CPI above. Jill Mislinski has analysis and this chart:

  • Factory orders for February declined -0.5%, slightly better than the expected -0.6% but worse than January’s unchanged reading. While this beat expectations, so it technically qualifies as “good” on my scoring system, I’ll wait for a stronger result.
  • FOMC minutes seemed less dovish than the actual announcement and press conference, but the market was untroubled. Steven Hansen (GEI) emphasizes the inability of Fed members to reach a meaningful consensus on key factors. He also criticizes the market’s narrow focus on rates.
  • Michigan Consumer Sentiment on the April preliminary reading was only 96.9, lower than March’s 98.4 and expectations of 98.0.
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